A limited constitutional government calls for a rules-based, freemarket monetary system, not the topsy-turvy fiat dollar that now exists under central banking. This issue of the Cato Journal examines the case for alternatives to central banking and the reforms needed to move toward free-market money.

The more widespread use of body cameras will make it easier for the American public to better understand how police officers do their jobs and under what circumstances they feel that it is necessary to resort to deadly force.

Americans are finally enjoying an improving economy after years of recession and slow growth. The unemployment rate is dropping, the economy is expanding, and public confidence is rising. Surely our economic crisis is behind us. Or is it? In Going for Broke: Deficits, Debt, and the Entitlement Crisis, Cato scholar Michael D. Tanner examines the growing national debt and its dire implications for our future and explains why a looming financial meltdown may be far worse than anyone expects.

The Cato Institute has released its 2014 Annual Report, which documents a dynamic year of growth and productivity. “Libertarianism is not just a framework for utopia,” Cato’s David Boaz writes in his book, The Libertarian Mind. “It is the indispensable framework for the future.” And as the new report demonstrates, the Cato Institute, thanks largely to the generosity of our Sponsors, is leading the charge to apply this framework across the policy spectrum.

Search form

Search this site

Foreign Policy Briefing No. 75

The IMF’s Dubious Proposal for a Universal Bankruptcy Law for Sovereign Debtors

By
Anna. J. Schwartz

March 5, 2003

Executive Summary

The International Monetary Fund has proposed a universal bankruptcy tribunal to deal with sovereign debt restructuring. But does the international financial system really need such a mechanism? There has been little demand by sovereign borrowers or their creditors for a universal bankruptcy law, and few countries have had to enter into debt restructuring procedures. The absence of such a law does not appear to have created chaotic conditions even in those cases.

Academic support for IMF’s proposal is limited, and a diverse group of critics supports alternative, market-based solutions. One such solution includes the use of majority-action clauses in bank and bond debt instruments that would bind all creditors to a debt renegotiation agreement between the country and creditor representatives, thus eliminating the need for unanimity among creditors. Another proposal explains how capital market tools already exist and how they have been used to renegotiate outstanding debt in a short period of time. The crisis in Argentina shows that a centralized bureaucratic management of debt problems was not needed to initiate reduction of outstanding debt or organize the country’s creditors.

Any of the proposals for dealing with sovereign debt problems may lead to reduced lending to emerging market economies. That may be a welcome change from the current culture of debt-based development and overborrowing, which the IMF has helped to encourage. A greater reliance on equity investment may help set countries on a more sustainable growth path.